Banks have lobbied for stricter controls for those dealing with IVAs, claiming that their own losses from bad debts arose due to the ‘unscrupulous marketing’ of IVAs.
However, Jim Fitzpatrick, Minister at the Department of Trade and Industry (DTI), argued that banks should lend more carefully. As commented in the Financial Times, he said: ‘If we’ve got a rise in indebtedness, if we’ve got a rise in people having difficulty in servicing that debt then maybe the banks are lending too much money or maybe they’re not being as careful as they used to be in scrutinising the applications.”
He added: “If they’d not lent it in the first place, they wouldn’t be in the difficulty of trying to recover it.”
A host of banks have argued that the popularity of IVAs had soared as a result of increased exposure through advertising, with 26,000 people becoming insolvent during the second quarter (Q2) of 2006 in England and Wales – a rise of 66 per cent from the 2005 Q2 findings. During the first half of 2006, banks in the UK wrote off £3.3 billion in bad debts.
Kim Barrett, proprietor at KS Barrett & Associates, admitted more education was needed about IVAs and other financial counselling for consumers experiencing financial difficulties. He said: “Like any debt counselling there is a lack of knowledge about the whole situation. It is a sophisticated process and people need to be aware exactly what they are getting themselves into, looking at all the options.”
